To chalk up 2014 as a low-hanging fruit bearing year for public home building enterprises in America truly would be unfair.
It would also be untrue.
To wield such a broad brush to paint a picture of what 22 publics achieved against a 12-month backdrop of headwinds and tailwinds, assets and merits, and fate and luck would misstate the often herculean and heroic, bold and brilliant, inspired and driven, grandly noble and minutely obsessive daily work of men and women, teams and the leaders, the ordinary and extraordinary people who put the "home building" in the term public home building corporations.
Besides, low-hanging fruit signifies goals that are easy to attain, which is the opposite of reality. It doesn't take long to learn of this community and its business cycles that nothing—especially when it comes to a profit margin on home construction—comes easily. When land is cheap, home buyers are scarce. When buyers start to come out of the woodwork, labor, materials, and land costs start to froth and bubble. When opportunities grow, risks loom up right alongside them. "Normal" in a home building cycle occurs with all the grace and aplomb of a plate spinner on the Ted Mack Amateur Hour of yore—it's more like controlled hysteria.
So it is that in May each year, once all of the public companies have reported their fiscal year financial performance that includes the Jan. 1 to Dec. 31 12-month period, BIG BUILDER level-sets the lot of them across a series of financial and operational benchmarks, and awards each a grade. Each year, the grading calculus morphs as recovery takes hold and slowly spreads to include more markets in its course.
Our grades stumble sometimes, as data from a disclosure standpoint sometimes masks either better or worse operational performance. Too, our grades don't factor in geographical concentration challenges, nor do the benchmarks get weighted differently if a company is fresh out of its initial public offering. We're never quite satisfied with our analysis. Although the calendar year equalizes certain operational metrics, we know that accounting and fiscal year strategies and tactics conspire to cast more favorable light on some of our players, while gypping others whose "hockey stick" quarter may have either pre-dated or taken place after our calendar calculations. Still, year-on-year comparisons are the only way we know that we can stand all 22 organizations up next to one another and compare them apples to apples.
This year, our crop of 22 firms tallied a total of over $50 billion in home building revenues on deliveries of 145,000-plus homes. That totals roughly $1 billion a week and home deliveries of about 400 a day, seven days a week, from this collection of companies.
What's more, a small portion of what may still be considered home building and development's expansive universe of pent-up demand activated beginning in 2013 and continued at a gradually spreading pace through 2014. This portion of people differs from the much larger universe in that they can use their own cash, or put enough resources to work to access the mortgage markets.
Many would-be and will-be buyers stand by, still on the sidelines. Housing finance policy and lending risk strategies slowly inch toward them. The tide will rise.
But it won't lift all ships. By and large companies with deep pockets and aggressive moves on A and B lot pipelines early on in the recovery—in 2011 and 2012—are the ones who fared the best in 2014. Companies that amassed capital later, or ones who were capital constrained during the distressed land acquisition game during those early recovery years, had to gut out tighter margins and less optionality in product and community offerings. Deep pockets are a given among this group of organizations. What's less of a given is what it will take to thrive in today's fits-and-starts, fragile market: deep market knowledge, executional excellence, and a deep commitment to your team's ability to outdo itself on performance. Everything matters.